2019 (5) TMI 1571 - AT - Service Tax

Penalty u/s 78 as well as Section 77(1) (a) and 77(2) of Finance Act - service tax were paid before issuance of SCN - interest was deposited subsequent to passing of the order - no SCN issued in terms of in terms of Section 73(3) of the Finance Act - bonafide mistake or not - HELD THAT - The appellant has not disputed the fact that they were collecting service tax from their client but were not crediting the same to the Central Government. The said fact came into light only when the audit was conducted in the assessee factory. It is only after detection, the appellant deposited the service tax. It is also on record that the interest on the said service tax was not paid by the appellant till the disposal of the appeal before Commissioner (Appeals). Sub Section 3 of Section 73 of the Finance Act states that wherein service tax has not been levied or paid, the person on the basis of his own ascertainment or on the basis of tax ascertained by Central Excise officers before servicing the notice pays the same and inform his jurisdictional Central Excise Authority, no show cause notice is required to be issued to him. However, the exception stands carved out by way of Sub Section 4 of Section 73 of the Act - Sub-Section 4 of the said section is to the effect that nothing contained in sub-section (3) shall apply to a case where service tax has not been levied or stand short levied or short paid by reason of fraud, collusion, willful misstatement, suppression of facts or contravention of any provisions with intent to evade payment of service tax. Whether it is a simple case of non-payment of service tax, which might have occurred on account of any bona fide belief entertained by the assessee? - HELD THAT - Admittedly the appellant was collecting the service tax from their clients. However, instead of depositing the same with the exchequer, they were pocketing the said service tax amount so collected by him. This fact clearly reflects upon the mala fide of the appellant. It is a fraud committed on the exchequer and the provisions of Section 73(3), which are applicable only to an innocent assessee, would not apply in the present case - there exists no reasons to set aside the penalties imposed upon the appellant. Appeal dismissed - decided against appellant.

Summary

Issues:
Imposition of penalty under Section 78 of the Act and Sections 77(1)(a) and 77(2) of the Act.

Analysis:
The appellant provided services falling under the taxable category of 'Business Auxiliary Service' to clients by marketing and promoting their products. An audit revealed non-payment of service tax on the commission earned, leading to a deposit of the entire service tax amount. Subsequently, a show cause notice was issued proposing demand confirmation, interest, and penalties. The Adjudicating Authority and Commissioner (Appeals) confirmed the demand and penalties. The appellant did not contest the demand but argued against the show cause notice issuance, citing Section 73(3) of the Finance Act.

The Lower Authorities noted that the appellant collected service tax from clients but did not remit it to the government exchequer until detection during an audit. The appellant's failure to credit the collected service tax was highlighted, with interest remaining unpaid until the appeal before the Commissioner (Appeals). The analysis delved into the provisions of Section 73(3) and (4) of the Act, emphasizing that the exception under Section 73(4) applies when service tax non-payment results from fraud, collusion, willful misstatement, suppression of facts, or contravention to evade payment.

The crucial issue at hand was determining whether the case involved a simple non-payment of service tax due to a genuine belief held by the appellant. The appellant's act of collecting but not remitting the service tax indicated malice, constituting fraud against the exchequer. As a result, the provisions of Section 73(3), applicable to innocent assesses, were deemed inapplicable in this scenario. Consequently, the penalties imposed on the appellant were upheld, and the appeal was rejected.

The judgment, delivered on 24 May 2019, maintained the impugned order, affirming the penalties imposed on the appellant for non-payment of service tax despite collecting it from clients.